Economic environment

There was hardly a cloud on the economic horizon in 2017. The most indebted countries of the euro zone shook off the crisis and surprised everyone with better-than-expec­ted growth. The euro zone’s GDP grew by 2.4 per cent. Another favourable result was the drop in unemployment, which fell from 9.6 per cent to 8.7 per cent thanks to the solid growth. All this happened without any measurable rise in inflation, thereby enabling the ECB to maintain its ultra-expansive monetary policy.

Measured against these extremely favourable results, the Swiss economy recorded disappointing economic growth. The 1.0 per cent growth was significantly less than the forecast level at the beginning of the year. However, the Swiss National Bank could breathe easier. On the one hand inflation trended back into positive territory and on the other the Swiss franc eased measurably against the euro. This currency trend was more a reflection of the euro’s overall strength than of the Swiss franc’s weakness. Economic growth in the neighbouring euro zone was stronger than expected, and the election of Emmanuel Macron as French president added further lustre to the single currency in financial markets, especially since the year had begun with a sword of Damocles hanging over the markets in the form of the anti-European French presidential candidate Marine Le Pen. In Switzerland, the SNB maintained its course thanks to the positive but still very modest inflation rate. The central bank left interest rates unchanged, although it did continue to intervene in currency markets during the first half of 2017.

The economic recovery in the United States continued apace. The Federal Reserve was able to continue its modest interest rate hikes, implementing three separate interest rate increases of 25 basis points each over the course of the year. These increases were accompanied by a shrinking bank balance sheet, as the bank began tapering its securities purchases in October by not reinvesting all proceeds from the securities reaching maturity.

Emerging countries also welcomed some good news. The rebound in oil prices helped the commodity exporting countries to halt the slide in their economies. Relative to the overall global economy, China posted still relatively high 6.9 per cent growth.

Equity markets in 2017

2017 was a markedly good year for equity investors. The global MSCI World index including reinvested dividends rose by 22.98 per cent. Europe and the emerging countries significantly outperformed the average, with respective gains of 27.63 per cent and 38.12 per cent. Swiss equities also benefited significantly from the robust global economic upturn and surpassed many forecasts with a 23.56 per cent gain.

All G20 countries made positive contributions and con­tributed to across-the-board global economic growth. Equity markets benefited from the continued low-interest-rate environment and expansive monetary policies from the key central banks. A combination of favourable financing costs, increased disposable household income in the leading industrial countries and further borrowing by some countries such as China drove infrastructure investments significantly higher while invigorating labour markets. The resulting productivity gains and improved retail sector performance accelerated the earnings growth of many companies.

2017 was also a year of challenges to be addressed. Donald Trump’s unorthodox leadership style created ­geopolitical and economic tensions, and in that regard it was essential for the future of his presidency that his proposed U.S. tax reform be passed in 2017. The renunci­ation and repudiation of free trade agreements with Asia, Canada and Mexico meant that the affected countries and regions had to find new arrangements, with China coming out the big winner. China is also a major driver behind the very strong Asian economy; as a major sup- plier it benefits from the on-going global trend toward digitalisation and automation. The very high fundamen­- tal valuations remained a major hurdle, although they were mitigated to some extent by strong earnings growth in 2017.